If you are thinking of purchasing your first home there are many incentives and programs available to assist you and reduce the financial burden of home ownership...

This week's blog, I will identify the important incentives you should be aware of including the current Federal First-Time Home Buyer Incentive (the Incentive) which helps qualified first-time homebuyers to reduce their monthly mortgage carrying costs without adding to their financial burdens.  (skip to #5).

As a first-time homebuyer, you’ll want to be familiar with various programs that apply to your situation. Whether it’s a rebate you may qualify for, a tax-efficient way of funding your down payment, or the minimum you must put down for your home purchase, there’s information you need to know to navigate the buying process and potentially save yourself some money along the way.

1. RRSP Home Buyer Plan.

If you haven’t purchased a home within the last four years (or lived in a spouse’s home in the same timeframe), you may qualify for the government’s Home Buyer’s Plan. With this plan, you may borrow up to $35,000 tax-free from your RRSP to fund your down payment. Just keep in mind that the money must be in your RRSP at least 90 days before the purchase of your house.

The First Time Home Buyer’s Plan is advantageous for Canadians because generally speaking, early withdrawals from RRSPs are considered taxable income.

In this case, they’re exempt but you must start repaying the amount borrowed from the RRSP two years after you buy over a 15-year period.

2. Land Transfer Tax Rebate.

You can receive a rebate on some of the land transfer tax you pay if you live in British Columbia, Ontario, or Prince Edward Island.  In Ontario, you can receive a rebate up to $4,000.00 on some of the homes purchase price. 

Homebuyers in the City of Toronto are also eligible to receive a rebate on the city’s land transfer tax, in addition to the provincial rebate. The amount applies whether you're buying a townhouse, condo or house and only if you’re a first-time buyer.

3. First-Time Home Buyer’s Tax Credit

This credit, introduced in the 2009 federal budget, allows first-time buyers in Canada the opportunity to recover some of the costs associated with their purchase. It helps offset legal fees, inspections, and other similar closing costs. The First-time Home Buyer’s Tax Credit is a non-refundable credit and is valued at $750.

4. GST/HST New Housing Rebate

This rebate offers money back to Canadians who buy a newly built home, substantially renovate an existing home, or rebuild a home that was destroyed due to fire. In all three cases, an individual will incur GST/HST on their purchase. The GST portion of a new home purchase or renovation can be rebated to all Canadians who qualify.

5. First-Time Home Buyer Incentive

The most recent change (first proposed in the Federal 2019 budget) and will be effective September 2, 2019, is the first time Home-Buyer incentive program.

The First-Time Home Buyer Incentive (the Incentive) helps qualified first-time homebuyers to reduce their monthly mortgage carrying costs without adding to their financial burdens.

You need to have the minimum down payment to be eligible. You can then apply for a 5% or 10% shared equity mortgage with the Government of Canada. Your maximum qualifying income is no more than $120,000 and your total borrowing is limited to 4 times the qualifying income.

A shared equity mortgage is where the government shares in the upside and downside of the property value.

To qualify:

• You must be a first-time home buyer.
• Buyers must have a down payment of at least 5% of the total purchase price, up to 20%.
• The household’s income must be under $120,000, and the mortgage and incentive amount together can’t be more than four times the household income.
• Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
• Buyers will not be exempt from the federal “stress test” regulations (a mandatory mortgage qualification using the five-year benchmark rate published by the Bank of Canada or the customer's mortgage interest rate plus 2%)

How does it work?

The Incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The Incentive is not interest bearing and does not require ongoing repayments.

Through the First-Time Home Buyer Incentive, the Government of Canada will offer:

• 5% for a first-time buyer’s purchase of a resale home
• 5% or 10% for a first-time buyer’s purchase of a new construction

How do I know how much I have to pay back?

You can repay the Incentive at any time without a pre-payment penalty. You have to repay the Incentive after 25 years or if the property is sold. The repayment of the Incentive is based on the property’s fair market value:

• You receive a 5% incentive of the home’s purchase price of $500,000, or $10,000. If your home value increases to $600,000 your payback would be 5% of the current value or $30,000.
• You receive a 10% incentive of the home’s purchase price of $500,000, or $50,000 and your home value decreases to $400,000, your repayment value will be 10% of the current value or $40,000.

NOTE: If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at the time of repayment.

Quick Facts about the First Time Homebuyer Incentive:

Canada’s First-Time Home Buyer Incentive will help qualified first-time homebuyers to purchase their first home as the incentive reduces their monthly mortgage payment, without increasing the amount that they must save for a down payment. The program will launch on September 2, 2019, with the first closing on November 1, 2019.

• The incentive will allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage with CMHC, Genworth or Canada Guaranty, to apply to finance a portion of their home purchase through a form of shared equity mortgage with the Government of Canada.
• For the purchase of an existing home, an incentive amount of 5 percent may be available. For the purchase of a newly constructed home, an incentive amount of 5 percent or 10 percent may be available.
• Doubling the incentive for purchasers of new homes encourages new housing supply.
• No on-going repayments are required, the incentive is not interest bearing, and the borrower can repay the incentive at any time without a pre-payment penalty.
• The government shares in the upside and downside of the change in the property value.
• The buyer must repay the incentive after 25 years, or if the property is sold.
• The incentive will be available to first-time homebuyers with qualified annual household incomes up to $120,000. At the same time, a participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual household income.
• The maximum mortgage amount shall not exceed $480,000.00